Fiduciary

Q&A: How will I pay for your financial planning services? How much do you typically charge?

In the CFP Board’s “Ten Questions to Ask Your Financial Advisor” they suggest, “Before establishing a relationship with a financial planner you will want to interview several people to make sure they’re the right match for you and exhibit key traits of a good advisor. Here are 10 important questions to ask before selecting a financial planner.”

In this series we are both providing an answer for Marotta Wealth Management as well as giving a longer analysis about the question, why the CFP Board may have included it, and what other organizations might answer if they were being truthful.

The seventh and eighth question are about compensation. The CFP board likely includes this question because if your advisor tries to hide how they are paid, you should probably run.

7. How will I pay for your financial planning services?

Planners can be paid in several ways: through fees, commissions or a combination of both. As part of your written agreement, your financial planner should make it clear how they will be paid for the services to be provided.

8. How much do you typically charge?

Although what you pay will depend on your particular needs, the planner should be able to provide you with an estimate of possible costs based on the work to be performed. Costs should include the planner’s hourly rates or flat fees, or the percentage of commission received on products you may purchase.

It is relatively easy for fee-only fiduciaries to answer the question “How much do you charge?” The only fee they collect is the fee that the client directly pays them. Our fees are listed on Our Fees page. As fee-only financial planners, we receive no other form of compensation.

For managed accounts at Marotta Wealth Management, we deduct management fees quarterly, billing an appropriate pro-rata portion to each account. The portion associated with Roth accounts are normally paid by a taxable brokerage account. The portion associated with traditional pre-tax accounts are paid from those pre-tax accounts. This allows clients to pay the management fee in the most tax efficient method. While the majority of our clients are managed-account clients, we are willing to charge an hourly fee or a fixed amount to complete some specific service for someone who is otherwise not a client.

Commission-based agents, brokers, and other so-called financial advisors collect multiple fees both directly and indirectly on behalf of their companies. These companies often use the phrase “fee-based” specifically to confuse consumers. When you hear that term you should specifically ask, “Are you fee-based or are you fee-only?” Neither the Securities and Exchange Commission (SEC) nor the CFP Board uses the term “fee-based” as it is purposefully misleading. The SEC offers a method for consumers to check on a financial advisor to see if they have filed as a fee-only advisor, although we have seen commission-based advisors who incorrectly file as fee-only advisors. It is a sanctionable offense by the CFP Board to use the term “fee-only” when in fact the firm is both fee and commission. Also, you cannot be fee-only and work for or own a commission-based business.

If you want a sampling of the fees collected by commission-based financial planners read “Where to Find the Hidden Fees of Commission-Based Firms” in which we simply summarized the seven pages from Ameriprise’s SEC ADV filing in which they tried to answer the question of how they got paid. Every Ameriprise adviser could not answer this CFP Board question honestly without listing all seven pages of how they get paid. If your advisor says that you get your investment advice for “free” or they say that they are “fee-based,” we recommend that you avoid working with them. If they are trying to mislead you in how they are paid, we would worry they will try to mislead you when it comes to investment advice.

Also, many of these firms offer nothing more than investment selection. If all you want is investment management, we have three options. First, we publish our gone fishing portfolios each year on our blog for free. Second and if you want more than that, we can even review your current portfolio and make recommendations for an hourly charge. Third, we manage a low-cost auto-investing and rebalancing service for a small ongoing fee. We believe that any of these options will provide better and lower cost investment advice than a commission-based agents or brokers.

Other firms may change the same or more than we do but only offer investment advice. Although most people seek a financial planner for investing advice, the greatest gain often comes from comprehensive wealth management. At Marotta Wealth Management, our fee covers not just Portfolio Management of your accounts but also includes comprehensive financial planning services.

We believe the incentives of commission-based advising all too often warps the content of the advice you receive. If you were a confident judge of the quality of the advice you receive, you probably do not need the advice in the first place. You can’t afford to mistrust your advisor every step of the way. We recommend that you find an fee-onlyfiduciary advisor whose compensation, competence, and comprehensive advice are not in question. We believe that NAPFA members provide a good place to begin that search.

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)